Analysis: Ten reasons to replace the General Schedule

The General Schedule needs to be replaced. It is an impediment to the effective management of payroll dollars and the workforce. The federal pay system is broken, and agencies deserve better.

Last spring, Rep. Darrell Issa, R-Calif., chairman of the House Oversight and Government Reform Committee, asked the Government Accountability Office to evaluate the GS system and develop recommendations that would make it acceptable. GAO should know it cannot be fixed. Now it has become a political football that promises to surface during the presidential campaign.

A recent study commissioned by the Organization for Economic Cooperation and Development looked at changes in government pay programs triggered by recession around the globe. As chief consultant on the study, I found that a number of countries are struggling with compensation issues, but some have successfully transitioned to new pay programs. It can be done.

Outside of the U.S. government, no other employer in the world -- in any sector -- has relied on the same salary system for six decades. The armies of clerks who were prevalent in 1949 have been replaced by technical "knowledge workers." Management practices that were dominant then were rejected by most employers long ago. Pay programs are decidedly different today.

With the exception of locality differentials, the General Schedule has been static. With salaries frozen, this is the best time to make the tough decisions about pay. Then a new program could be in place when agencies are allowed to grant salary increases. Agreement now on replacing the GS system could avert unnecessary wrangling in next year's political debate.

Here are 10 reasons why a new system is needed:

A prominent trend in other countries is increased emphasis on accountability and results. A corollary trend is the delegation of workforce planning to front-line supervisors. Several countries hand off salary management to local offices. The GS system precludes giving that responsibility to managers.

The General Schedule differs from salary systems in other sectors on two key issues -- pay for performance and market alignment. Outside of government, employers rely on separate systems for professionals, office support and technician jobs, as well as for engineers and technology specialists. This helps employers respond to hiring and salary trends. Government has several separate systems, but it needs more.

The hierarchy of federal pay grades is dictated by job classifications in Title 5 of the U.S. Code -- a 1949 time warp. Since then the demand for knowledge workers has pushed salaries above designated grades. If jobs and their market salaries were overlaid on the GS scale, the discrepancies would be pronounced. Relying on the Title 5 grades means some jobs are paid above market and others below. The challenges for payroll management should not be ignored.

GS salaries are not competitive for new graduates in technical fields. A recent survey shows the average annual salary for graduates in computer-related fields increased by 9.6 percent, jumping from $58,189 in 2010 to $63,760 in 2011. And that's during a recession. Starting salaries for engineers were only slightly lower. Those are national averages. As the economy improves, the federal pay gap will get worse.

The process used to classify jobs has always been imprecise, time-intensive and costly. Specialists known as classifiers have largely disappeared along with their expertise. Staff cuts in human resources offices make it difficult to police agency requests for reclassification. New budget cuts will make the situation more untenable.

Pay obstacles will become even more daunting if budget cuts force agencies to reorganize. Years ago, the Navy's pay demonstration project in China Lake, Calif., was hampered by the lengthy process of reclassifying General Schedule jobs. Then officials adopted the idea of broad salary banding with less emphasis on classification and more flexibility. Title 5 and the GS system will impede reorganizations.

Grade creep is another reason for reforming the classification system. Federal Times recently reported that the percentage of jobs in grades 12 to 15 rose from 48 percent in 1998 to 64 percent today. There are fewer lower grade jobs, but grade inflation is an acknowledged problem. It's unlikely the Office of Personnel Management or hiring agencies will ever have the staff to verify that jobs are accurately classified.

No one knows which, if any, GS employees are overpaid or underpaid. It has been 15 years since the Bureau of Labor Statistics collected survey data for the benchmark jobs used for pay assessments. Reports from the President's Pay Agent and think tank analyses fail to show job-to-job comparisons of federal and nonfederal salaries. The debate will no doubt continue until transparent, credible data are compiled.

The methodology developed by BLS and OPM to estimate the pay gap between government and the private sector has lost credibility. It dates to the mid-1990s when BLS switched to what is now the National Compensation Survey to enhance the Employment Cost Index. This move undermined the validity of BLS adjustments for GS salary ranges. For several years the President's Pay Agent refused to use the BLS data in setting locality pay for federal employees. Several Band-Aids have been adopted, but the methodology is still flawed.

As critics of the General Schedule like to say, "living and breathing" are the only qualifications required for a step increase. GAO is looking into making the GS system more performance-oriented. Quality step increases and bonuses are possibilities, but performance-related rewards depend on a fair and broadly accepted process for managing and evaluating performance. That has been the core problem when pay-for-performance policies have failed.

The evidence speaks for itself. The General Schedule fails every test and needs to be replaced. There's no better time than the present.

Howard Risher is an independent compensation and performance management consultant. He was the managing consultant for the studies leading to the 1990 Federal Employees Pay Comparability Act. He is the author or co-author of five books, including Planning Wage and Salary Programs (WorldatWork Press, 2009).